Yellen warns of inequality threat

By Binyamin Appelbaum, NEW YORK TIMES

October 17, 2014

Photo: Michael Dwyer, STF

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Federal Reserve Chairman Janet Yellen speaks during a conference on economic opportunity at the Federal Reserve Bank in Boston, Friday, Oct. 17, 2014. Yellen said that the last several decades have seen the most sustained rise in income inequality in a century. (AP Photo/Michael Dwyer) less

Federal Reserve Chairman Janet Yellen speaks during a conference on economic opportunity at the Federal Reserve Bank in Boston, Friday, Oct. 17, 2014. Yellen said that the last several decades have seen the ... more

Photo: Michael Dwyer, STF

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FILE - In this Thursday, Oct. 16, 2014, file photo, Federal Reserve Chairman Janet Yellen speaks with staff during a visit to the office of CONNECT, a coalition of local organizations that provides employment services in Chelsea, Mass. Yellen said Friday, Oct. 17, 2014, that the last several decades have seen the most sustained rise in income inequality in a century. (AP Photo/Michael Dwyer, File) less

FILE - In this Thursday, Oct. 16, 2014, file photo, Federal Reserve Chairman Janet Yellen speaks with staff during a visit to the office of CONNECT, a coalition of local organizations that provides employment ... more

Yellen did not mention recent market turmoil or monetary policy during her speech. Instead, she painted a bleak picture of the increasingly unequal distribution of wealth and income, warning that Americans already have relatively little chance to advance economically, and that the problem may be worsening.

"I think it is appropriate to ask whether this trend is compatible with values rooted in our nation's history, among them the high value Americans have traditionally placed on equality of opportunity," she said in her speech, which opened a conference on inequality at the Federal Reserve Bank of Boston.

Yellen, who took office in February, continues to put her stamp on the Fed by raising the profile of issues related to economic inequality. Beyond the Fed's efforts to increase job growth through stimulative monetary policy, Yellen sees a role for the central bank as a source of research intended to provoke public debate.

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Yellen on Friday focused on four sources of economic opportunity: the means to raise children, access to education, owning a small business and inheritance.

She said recent Fed research showed the distribution of those opportunities to be increasingly unequal. Government benefits and public programs offset some of that inequality, but Yellen noted that public financing for early education had not increased since the recession, while the cost of higher education continues to rise.

Similarly, she noted that the decline in small business creation suggested that it had become harder for people to build wealth through entrepreneurial risks, threatening "what I believe likely has been a significant source of economic opportunity."

Inheritances were the somewhat surprising bright spot in her bleak picture. Yellen said that wealth gains from inheritances were less concentrated than overall wealth. Large numbers of less affluent families continued to receive windfalls.

Yellen noted that inequality could contribute to economic growth by serving as an incentive. But it can also make things worse, she said. She pointed to a relationship she described as the "Great Gatsby curve" - that in advanced economies with greater inequality, there is also less opportunity for intergenerational mobility. And mobility, she said, "is lower in the United States than in most other advanced countries."

Yellen offered few specific suggestions on addressing these problems.

Her remarks Friday, accompanied by extensive data compiled by her staff, expanded on her concerns. Between 1989 and 2013, Yellen noted, the average income of the top 5 percent of households rose 38 percent. For the remaining 95 percent of households, it grew less than 10 percent.

The widening gap in overall wealth is even more pronounced. The average net worth of the bottom 50 percent of families - a group of about 62 million households - was $11,000 in 2013, Yellen said. Adjusted for inflation, that figure is 50 percent lower than in 1989.

By contrast, the average real net worth of families in the country's top 5 percent has jumped from $3.6 million in 1989 to $6.8 million in 2013, according to the Fed's data - an 89 percent surge.